Years of aggressive expansion are continuing to haunt SAirGroup as the Swissair parent reveals a loss of $1.7 billion for last year - but the group says a realignment of its strategy should turn the tide.

Last year "was the worst year in the history of Swissair/SAirGroup," the group said in a statement, citing major losses incurred by airline investments, value adjustments to loans, compounded by rising fuel costs and surplus capacity. The group bought minority stakes in over 10 European airlines to compete with Lufthansa, British Airways and Air France.

"The group intends to realign its overall business strategy to lay a sound foundation on which to substantially enhance its revenue and earnings performance," the group said.

A management shuffle began in January when SAirGroup Chief Executive Philippe Bruggisser stepped down - a move foreshadowing the group's deep financial problems. Then two weeks ago the group stepped up to renew confidence and turn around its unprofitable Swissair unit by naming Mario Corti - former CFO of consumer food giant Nestle - its new chairman and CEO. A week earlier, Moritz Suter, head of the group's airlines division, stepped down after only weeks on the job, citing his "inability to tackle the task" of turning around the group's money-losing airlines under the current management structure. Suter is the third person to hold that position in less than a year.

Losses abound around the group. Swissair had a loss of $112 million, with its fuel costs alone increasing sharply to $155 million, up 56% year-over-year. Belgium carrier Sabena, which the group holds a 49.5% stake, had losses of $284 million. Combined losses at France's AOM/Air Liberte and Air Littoral were $344 million and $196 million losses were posted at Germany's LTU.

The group had a profit of $165 million in 1999.

Corti is reportedly planning to announce a cash injection of at least $590 million from a banking consortium headed by Credit Suisse to prop up the ailing group.

By Mark Odell in London and Bill Hall in Zurich
Published: April 2 2001 14:40GMT | Last Updated: April 2 2001 14:49GMT

SAirGroup, the parent of Swissair, unveiled the first raft of measures on Monday, including the disposal of some non-core assets, aimed at shoring up the company after its airline investments brought it to the brink of collapse.

The details of the planned restructuring of the group, which includes changing its name back to Swissair, were unveiled as it reported a net loss for 2000 of SFr2.89bn ($1.66bn) compared with a profit of SFr273m the previous year, its worst performance ever.

Mario Corti, the group's new chairman and chief executive, outlined plans to sell the Swissotel hotel chain and dispose of SFr700m of its property portfolio.

It will also sell its 10 per cent stake in Austrian Airlines (a hangover from a now defunct relationship between Swissair and its neighbour), its 7 per cent stake in Galileo, the central reservation system, and its holding in Equant, the telecommunications group.

Mr Corti stopped short of detailing his plans for the other airline investments built up by his predecessor, Philippe Bruggisser, who was sacked in January, but promised action would be taken over the coming months.

"The company must and will correct the problems it is currently experiencing. The matter of most urgent concern is reducing the risk to which the group's airline investments are currently exposed as quickly and as substantially as possible," Mr Corti said.

The losses in the airline division, which include the core business of Swissair alongside stakes in a number of highly unprofitable European airlines, combined with the provisions taken to restructure the business amounted to SFr3.73bn.

The extent of the losses underlines why the SAirGroup board decided to follow Mr Bruggisser, resigning en masse in early March.

The group said the three French airlines - AOM, Air Libere and Air Littoral - it had planned to merge into one to create a competitor to Air France reported a combined net loss of SFr600m last year. Sabena, in which SAirGroup currently holds a 49.5 per cent stake, lost E325m ($284.2m), and German charter airline LTU lost E224m.

SAirGroup's equity has shrunk from SFr4.2bn to SFr1.2bn and its debt equity ratio has soared from 1.01 to 4.68 primarily because of the SFr3.7bn net cost of writing down the airline investments.

The group's large non-airline businesses helped offset the operating losses on its airline business, and group earnings before interest and tax and write-offs, only fell 10.5 per cent, to SFr603m while revenues rose 25 per cent, to SFr16.2bn.